Your distribution network is vast. You sell your product to distributors. You have no way to track what happens after that. So how can you be held accountable for how your cartons and packages hit the stores—or the street? A $1.25 billion settlemen

Through the Smoke

Meanwhile, in the six months that have passed since the EU settlement was signed, Ian Walton-George, head of the customs unit for the European Anti-Fraud Office, says little has changed.

"We're still seizing thousands of cigarettes every day somewhere in Europe," he says. "We've seen a slight decline in the amount of genuine cigarettes smuggled, but it's still a major problem."

As for the landmark pact between the EU and Altria, Walton-George says, thus far, it's been all talk and no action.

"To my knowledge, we have not been presented with a database of first-purchaser customers from Philip Morris International," he says. "Whatever improvements they've said they'll make in tracking and tracing cigarettes, we don't know anything about them yet.

"We're just hoping this agreement will be a first step to improving tracking and tracing," he adds. "I know they're talking about RFID, but so far no one has seen anything. In the past, we didn't even talk to Philip Morris. At least we're talking now."

Thus far, PMI is the only cigarette manufacturer to hammer out a deal with the EU. Other tobacco makers such as Reynolds International are still subject to civil litigation in the U.S. and in Europe for allegedly conspiring with known cigarette smugglers to sell more cigarettes into international markets.

Even the best information system can only protect a supply chain so much, say fraud trackers such as Walton-George. But that doesn't remove responsibility from Altria or any other cigarette manufacturer.

"It comes down to aiding and abetting," says John Boatright, professor of business ethics at Loyola University in Chicago. "Generally, it comes down to who knows what and when. Philip Morris controls its supply chain and is aware of its sales, so it can't say it's ignorant to what's going on."

Back at Kennedy Airport, ATF senior special agent Joe Green and roughly 100 colleagues spent the better part of two weeks stacking and recording hundreds of thousands of Philip Morris cigarettes. Each of the 100,000-plus customers who were expecting an oversized manila envelope stuffed with two cartons of Marlboro cigarettes would instead receive a letter from the U.S. Customs Service informing them that their order had been seized.

"These smugglers are stuffing these igloos, these huge containers, full of thousands of white bags with dozens of manila envelopes inside them and flying them in from Europe every day," Green says. "You have to see it to believe it."

Senior Writerlarry_barrett@ziffdavisenterprise.comLarry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.